Home Appraisals for Refinancing: What to Know

Several qualifying factors for mortgage refinancing depend on appraisal results. These assessments of your home’s value help lenders evaluate risk, determine loan approval eligibility, and calculate available home equity. Here, we’ll break down which parts of your home are evaluated during an appraisal, how to best prepare for one, and the surprises you might have to deal with along the way.

What Is a Refinance Appraisal?

A refinance home appraisal is a professional evaluation of a property’s current market value, often required by lenders before refinancing. Appraisers assess a home’s current market value by considering condition, size, location, and local comps.

Explore available refinance options at Freedom Mortgage to see which program aligns with your financial goals.

Why Do Lenders Require Updated Appraisals to Refinance?

For lenders, appraisals are critical to verify that a home can qualify for a new loan. Appraisals help finalize some key lending decisions.

• Appraisals determine loan-to-value (LTV) ratios—calculated by dividing a new loan amount by an appraised value. Lower LTV ratios can improve chances of qualifying by mitigating lending risk.
• For homeowners refinancing to access home equity, appraisals help identify cash-out limitations based on your home’s value and dictate how much equity is available.
• Since PMI is often required for conventional loans on homes with <20% equity, refinance appraisals can determine if enough equity has accumulated to remove mortgage insurance.

Do All Refinances Require a Home Appraisal?

Lenders are usually required to request appraisals with most refinances. However, if you qualify for a property inspection waiver or appraisal waiver, you could dismiss appraisals entirely. Also, certain types of loan refinances offer expedited processes and may not require an appraisal to qualify.

Refinance Types That Don’t Need an Appraisal

There are a handful of streamlined government-backed refi programs that don't require appraisals—here are some we offer:

• VA IRRRL: Available for qualifying borrowers with a VA loan to refinance to another VA loan without an appraisal.
• USDA Streamline refinance: Allows qualifying borrowers with existing USDA loans to refinance for a new one without an appraisal.
• FHA Streamline refinance: Homeowners with existing FHA loans can refinance for a new FHA loan without an appraisal.

Streamlined mortgage refinance options generally offer simpler processes and lower upfront costs.

How Does a Refinance Appraisal Work?

Appraisers analyze a property’s condition, characteristics, and relevant data to provide unbiased professional property valuations. Here are some of the most significant factors they review:

• Property condition and maintenance: Signs of deferred maintenance and visible wear and tear, quality of HVAC systems, water heating components, and the condition of plumbing systems help appraisers assess property condition.
• Home size, layout, and features: More square footage, more rooms (specifically bedrooms and bathrooms), and efficient layouts that maximize space generally mean higher property values. Desirable features like updated kitchens and open floor plans can add character and value to homes.
• Renovations and upgrades: Minor cosmetic changes are highly impactful, so don’t underestimate new coats of paint, fresh landscaping, or updated lighting. Consider revamping high-traffic spaces and daily-use items like garage doors and bathrooms. Updating anything visible within the first 30 seconds of entering a home will often generate a high ROI.
• Comparable sales: Appraisers compare homes against comparable sold homes, or real estate “comps”—homes in the area with similar features (i.e., size, number of bedrooms, and condition) that recently sold. Comps are contextual references for appraisers' home valuations.
• Neighborhood and market trends: The neighborhood a home is in, real estate supply and demand dynamics, current economic conditions, and local market conditions can contribute to a home’s value as much as its features. Proximity to amenities, school districts, employment opportunities, and neighborhood desirability also affect appraisal results.

Refinance Appraisal Checklists

Knowing what appraisers consider during a home appraisal helps you adequately prepare your home for evaluation. Here’s everything you should know before your next home appraisal:

Tending to these details and making thoughtful improvements can improve your appraisal results.

What Your Appraised Value Means for Refinancing

Appraisals influence mortgage-qualifying metrics such as your LTV. A less favorable (higher) LTV ratio can impact your approval eligibility, the loan term and conditions you qualify for, and borrowing limits. You can't predict your home’s exact market value, and the table below shows how appraisal results can influence your refi.

Navigating Lower-Than-Expected Home Appraisals

If your appraisal comes in lower than you expected and you think there is an error, you can submit a reconsideration of value (ROV) through your lender, appealing the appraised value as too low. It’s best for you to have a list of comps and recent home improvements (or other information) to support your appraisal ROV.

If an ROV isn’t applicable, you still may have no-appraisal options if your refinance appraisal comes back lower than you expected. You can potentially benefit from streamlined loan programs, which forgo appraisals entirely. Also, even with a lower-than-expected appraisal, your home might have enough equity for an appraisal waiver, for which Freedom Mortgage can help you find out if you’re eligible.

Final Thoughts: Do You Need an Updated Appraisal to Refi?

An updated appraisal can have a wide impact on refinances. Although you can’t control your home's appraised value, there are some cosmetic improvements you can make that could improve appraisal results. Appraisers consider size, location, recent improvements, and comparable sales, yet if the appraised value jeopardizes your chances of approval, check your eligibility for streamlined refinance options, or an appraisal waiver–both allow homeowners to refinance their mortgage without an appraisal.

If you’re ready to refinance to tap into your home equity, change your loan term, or take advantage of money saving opportunities, get prequalified online today.

*By refinancing, the total finance charges may be higher over the life of the loan.